NBFC Registration

NBFC Registration - What is NBFC?

NBFC (Non-Banking Financial Company) is engaged in financial activities as defined under section 45-IA of the RBI Act 1934 but does not possess a banking license. A company can offer banking services such as lending of loans, assets mortgage, insurance, hedge funds, etc after NBFC Registration.

However, they do not have permission to perform banking operations of accepting demand deposits from the public. They also cannot issue cheques drawn on it.

NBFCs are registered as per the rules and regulations prescribed under Companies Act 2013 and the RBI Act 1934. They are playing a vital role in executing financial functions in the economy. They help to meet the demand that remains unfulfilled by the traditional banking system in shorter processing time.

An NBFC can provide both secured and unsecured loans to the takers based on alternative lending models. The government has been promoting NBFC so that the unorganised money lenders and people willing to run financial services can organise their lending operations.

What are the Roles and Functions of an NBFC?

NBFCs play a significant role in conducting financial services in the Indian economy. NBFC in India have undergone too many transformations in recent years. At present, most of the NBFC Start-ups have adopted high-end tech based business model.

These NBFCs are working actively to promote financial inclusion & as well aggressively complementing the banking sector.

• NBFC creates a favorable balance in addressing the financial needs of the country, where a large number of applicants are turned down by traditional Banks of India.
• NBFC provides loans based on alternative credit scoring model to assess the loan application.
• Indian Fintech Start-ups have been using NBFC model to offer financial services.
• Credit growth of registered NBFCs is recorded at 24.3% per year as against 21.4% for banks.

NBFC vs. Bank - What is the Difference Between an NBFC and Bank?

Banks are similar to an NBFC, but they perform extra banking functions. Member of both the categories is counted among the top finance companies in India.

What are the Types of NBFC in India?

There are two categories of NBFC. These are distinguished on activities in operation as well as on the authorization to take deposits.

NBFC Based on the Authorization to Take Deposits

• The Deposit Taking NBFC (Type -1)
• Non-Deposit accepting NBFC (Type -2)

NBFC Based on their Activities

• Non-Banking Financial Company – Investment and Credit Company

  (In recent development, RBI has merged Asset Finance Companies, Investment Companies and Loan Companies in to a single category)

• Infrastructure Debt Fund (IDF-NBFC)
• Non-Banking Financial Company – Factors (NBFC-Factors)
• Peer to Peer Lending Marketplace.
• Infrastructure Finance Company.
• Core Investment Company.
• Non-Banking Financial Company-Micro Finance Institution (NBFC-MFI)
• Mortgage Guarantee Company.
• Housing Finance Company
• Chit Fund Company
• Mutual Benefit Finance Company
• Core Investment Company

What are the NBFC Pre Registration Requirements?

Before the NBFC filing there are certain pre-registration requirements for a registration of NBFC:

• Register a Company as per Companies Act 2013
• Arrange Capital of Rs. 2 Crore (Minimum capital requirement for an NBFC)
• Create a Fixed Deposit of Rs 2 CR
• FDI Compliance as per FEMA Act - In the case of foreign investment
• Complete documentation for an NBFC license
• Submission of necessary documents with FD receipt before RBI

Documents Required for an NBFC License in India

• MOA of the NBFC Company

  The object clause in the MOA is depicting the financial/Investment/Lending business.

• Certified Copy of Registration Certificate

  Obtain a Certified copy of Certificate of Incorporation (COI), MOA & AOA from the Regional registrar of companies

• Latest KYC

  Need updated KYC & Income proof of Directors and Shareholders

• Net worth Certificate

  Collect updated net worth certificate of Directors, Shareholders, and Company

• Clean Banker Report

  Need to Obtain a Banker report about the no Lien remark on the Initial Fixed deposit of Rs 2 Cr.

• Education Proof

  Proof of educational/professional qualification of the directors of the Applicant company

• Credit report of Directors and shareholders

  Latest credit reports of directors and shareholders are required.

• Experience in the Financial sector

  Submit at least one Director's profile with 10+ years’ experience in the financial services sector

• Underwriting model

  Submit a detail action plan about the loan products, fair practice code, credit and risk assessment policy.

• Organisation Matrix

  Need to provide organizations structure and decision-making process for approval/rejection of a loan application

• System and IT Policy

  Submit Information technology policy

NBFC Registration Departments

The founders are required to follow both online as well offline NBFC application process to obtain the NBFC license. The Reserve bank of India is an autonomous body, and it has two departments to regulate and supervise the function of an NBFC.

• DNBR (Department of Non-banking Regulation)

  The DNBR is responsible for conducting the Fresh NBFC Registration process as well for preparing the regulation for the NBFC. The DNBR has transparent as well innovative assessment process of NBFC Application.

  The DNBR will email you or send you a formal notice if they need of any additional documents during the NBFC registration process. The RBI expects your submission/response to a notice within 30 days as per the NBFC regulations.

• DNBS (Department of Non-Banking Supervision)

  DNBS is responsible for post-registration compliance and other administrative issues about NBFCs.

  Applicants can expect an NBFC license in 90 to 120 days after successful acceptance of an NBFC application.

How to Apply for NBFC Registration? - NBFC Registration Process Checklist

Before the filing of Application for COR (Certificate of registration), one should read the following checklist of NBFC registration Process.

Step 1 – Hire NBFC Registration Consultants

• Experience Matters

  Select an Experienced Consultant with Minimum 10+ years of Experience in NBFC & Banking laws.

• Credibility

  An NBFC Consultant firm should have a good team size of 100 to 150 with a combination of professionals like CA, CS, Lawyers, and Senior Bankers.

• Verify Reference

  Ask the NBFC Consultant to give you a minimum of three references of clients

Step 2 – Business Plan

• Founders and Executive Summary
• Loan Product
• Lending Process with SOP (Standard Operating Procedure)
• SWOT Analysis
• Credit & Risk Model
• Competitors Analysis
• Lending model – Digital / Branch Model
• Financial forecast

Step 3 – Application for CoR (Certificate of Registration)

• The middle name of Company must have Finance, Finserv, final, Investment, Capital, Fintech, and Leasing etc. For Example Enterslice Capital Limited
• Create a Fixed Deposit of Rs. 2 Cr with Scheduled commercial bank
• Verify the Backgrounds of Promoters
• Necessary documentation for obtaining an NBFC license
• Submit an online COR application on RBI's website (COSMOS), thereafter a CARN will be generated
• Physical submission of Application with the regional department of RBI
• RBI will scrutinize submitted application and COR will be issued.

What are the Support Services from Enterslice after Certificate of Registration from the RBI?

• Advisory for Fintech Based Credit Assessment model
• Assistance in SOP of the Organization
• Assistance in designing loan product
• Finalizing reporting formats from various verticals of the organization
• Guidance on Digital Financial Services Marketing
• Assistance in developing Company Policies
• Development of High-Level Business Plan & Investor Deck
• Helping founders in preparing to go to market strategy
• Assistance in the fundraising process via FDI Automatic route
• Assistance in meeting secretarial compliances
• Assistance in meeting RBI Compliance
• Advisory on Adoption of Ind-AS
• Internal Audit Services

What are the NBFC Registration Fees?

For NBFC registration, there is a requirement of minimum capital of Rs. 2 cr therefore an applicant needs to register a company with the prescribed capital along with the requisite government fees.

What are the NBFC compliances after COR?

There are certain compliances to meet after the completion of the NBFC Registration Process. Additionally, they need to follow the RBI Act, RBI Guidelines, Circulars, and notifications published in the public domain from time to time.

• Adoption of Fair Practice Code
• Cosmos Registration
• FIU-IND Registration
• CIC Registration
• C-KYC Registration
• CERSAI Registration
• Filling of NBS-9 by use of Online Platform of RBI (COSMOS)
• Secretarial compliances
• Compliance of KYC Anti money Laundering
• Appointment of Statutory Auditor (CA having 5+ years of experience)
• Statutory Audit
• Tax Audit.
• GST Return Filing
• Income Tax Return filing
• ROC Returns
• Any other Compliance / Returns required by the Competent Authority

Fresh NBFC Registration vs. Takeover of Pre-Existing NBFC

Applying for new NBFC Application is always a better option than a takeover of existing ones. The registration of NBFC is simpler than before. This is especially for Foreign Companies, who intends to enter into the Indian Financial service market.

We always advise them to apply for the new NBFC registration Application instead of buying existing NBFC.

Advantages of Fresh NBFC Registration above NBFC Takeover

• Low Legal Risk

  In case of NBFC takeover, any past Non-compliance with RBI Act may lead to cancellation of the NBFC License.

• Timeline

  Fresh NBFC Registration can be completed in a period of 90 to 120 days whereas an NBFC Takeover usually takes 5 to 9 Months.

• Title Risk

  There is no title risk of Ownership after new registration of NBFC. You are the 1st shareholder of the company at another side in acquiring an existing NBFC. You will not be able to establish the precise title of shares.

• Tax Liability

  Entities are responsible for a tax liability of existing NBFC they are willing to take over.

• Capital

  In case of new NBFC License application, you may need to block your Rs. 2 Cr / Rs. 20 Million FD in Bank Account. However, the proposed shareholders are required to submit the Bankers report in a case of the NBFC takeover. The report states that the Bank Balance is equivalent to book value of the shares.

What are the Benefits of Fintech Based NBFC Business Model?

The Integration of new age technological advancements with financial business operations is reaping numerous benefits to the economy. There are many advantages of doing so such as

• Addressing customer problems using technological advancements
• Online loan facility
• Working on financial inclusion – app based loan in 30 minutes
• Creating space for the alternative digital banking system, disrupting conventional business models facing significant legacy issues
• Use of Big data, AI & Machine learning tools to minimize the fraud

Benefits of Fintech Based NBFC as an Alternative Lending Model

• Reduction in Operation Cost

  Fintech based NBFC make extensive use of the technology and IT Infrastructure. Hence, the operating cost reduces significantly.

• Broad Reach

  Fintech NBFC can target a diverse pool of customer beyond geographical limitations. This advantage is outside the scope of the conventional banking system.

• Higher ROI

  Fintech based NBFC has higher fund cost in comparison to Bank. However, it enjoys a lower customer acquisition cost and lower servicing cost than Banks.

• Lower NPA than Bank

  Fintech based NPA has higher NPA compare to banks. However, their ROI is much higher than a secured lending model. The alternative lending business model generates twice better profit than traditional lending models.

How Enterslice will help you to get NBFC Registration

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